Solar Incentives at Risk of Elimination – Act Swiftly to Cash In or Brace for Costs Increase
Going Solar Just Got Complicated: A Potential Upheaval in the Solar Industry
For the past two decades, homeowners have enjoyed federal tax credits to help offset the high costs of switching to solar power. However, a recent proposition by the U.S. House of Representatives could change that as early as the end of this year. If this idea sees the light of day in both the House and Senate, it could drastically alter the equation for powering your home sustainably.
"This move could leave solar out of reach for millions," warns Glen Brand, director of policy and advocacy at Solar United Neighbors, an organization that fosters the adoption of solar technology. "The House has essentially set up ordinary Americans for a tough decision. In essence, they're saying they won't help people grappling with escalating energy costs."
The very first solar tax credits came to life in 1978, but they fizzled out in 1985 during the Reagan era. Republicans, however, revived these incentives in 2005, under President George W. Bush. Lawmakers have tweaked and extended these incentives since then, most recently with the 2022 Inflation Reduction Act, which set the credit at 30% of a system's cost until 2032, followed by a two-year phaseout.
At present, an average solar system in the U.S. costs around $28,000. With a tax credit, homeowners stand to save approximately $8,500. But, if the current proposal in the House goes through, the so-called 25D tax credit would vanish by the year's end, dealing a significant blow to the solar industry.
In the short term, if solar systems still make financial sense in sunny regions with high electricity prices, the payback period might lengthen for others, potentially forcing them to reevaluate their decision to switch to solar power.
"Brace yourself for a sudden increase in solar installations this year, followed by a market contraction," predicts Zoe Gaston, a principal analyst for residential solar at energy consultant Wood MacKenzie. "If you've been thinking about solar and can afford it, it's time to act now."
But the 25D credit isn't the only incentive at risk. Another credit, 48E, allows businesses to reduce costs when they install solar on homes and either lease the equipment or enter power purchase agreements. This arrangement currently powers more than half of residential installations.
The House's plan focuses on limiting the origin of material used in photovoltaic panels instead of eradicating 48E. While the exact implications of the proposed language are yet to be fully understood, it aims to bar "foreign entities of concern," primarily those in China, where the majority of solar components are produced.
However, this could prove impractical, claims Sean Gallagher, senior vice president of policy at the Solar Energy Industries Association. The increased responsibility of tracking supplies could effectively make the 48E credit practically impossible to access come 2026.
The current House draft could temporarily push people toward third-party ownership options, says Gaston. Yet, when Wood MacKenzie performed an analysis sans the House's proposal, it still forecasted a 30% drop in installed residential capacity by the end of the decade.
"This move could prove disastrous for companies, their employees, and their customers," says Gallagher. "It threatens an industry that employs hundreds of thousands of workers and pulls in tens of billions of dollars in investment each year."
The solar industry is already battling other challenges. Some states, like California, for instance, have cut back on the amount homeowners can earn by selling power to the grid, making solar less financially rewarding. Even before the shift in political power, companies had begun letting people go. Additional layoffs have been announced since.
Some Republicans acknowledge the role that energy tax credits play, both in the economy and their respective districts. Twenty-one House Republicans signed a letter expressing concern over the proposed changes, while four Republican Senators wrote to Majority Leader John Thune, urging a pragmatic approach to any amendments.
"This depends on what the Senate does," emphasizes Brand, regarding the future of solar tax credits. He remains optimistic that the rollbacks will be corrected. "This is an issue the Senate can get right."
However, Jacquelyn Pless, a professor researching energy and environmental economics at the MIT Sloan School of Management, sees policy volatility as a more significant concern. Constant changes in policy can stall investment, increase costs, and undermine market confidence.
This article initially appeared on Grist at https://grist.org/climate-energy/if-you-want-to-claim-the-solar-tax-credit-install-now/. Grist is a nonprofit, independent media organization committed to telling stories about climate solutions and a just future. Learn more at Grist.org**
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- Potential Consequences:
- Disruption in the Solar Industry:
- Immediate Impact: Eliminating the Investment Tax Credit (ITC) without a gradual phase-down could cause immediate disruption within the solar industry, potentially leading to layoffs and a slowdown in new installations[2].
- Investment Freeze: The sudden loss of tax credits could freeze new investments in solar projects, affecting the industry's growth and development[1].
- Consumer Impact:
- Higher Costs: Without the 30% tax credit, homeowners would face higher upfront costs for solar installations, potentially discouraging some from going solar[3].
- Energy Savings: While solar panels can save homeowners money on energy bills in the long run, the increased upfront cost without credits could deter some from making the investment[3].
- Environmental Impact:
- Clean Energy Transition: Repealing solar tax credits could slow down the U.S.'s transition to cleaner energy sources, potentially increasing reliance on fossil fuels and impacting climate goals[1].
- Political and Economic Impact:
- Economic Growth: The solar industry is a significant contributor to job creation and economic growth. Ending tax credits could lead to job losses and economic slowdown in this sector[1].
- Political Resistance: The proposal faces opposition from both Democrats and some Republicans, potentially leading to a contentious legislative process[4][5].
- The House's recent proposition could drastically alter the solar industry if it eliminates the Investment Tax Credit (ITC) without a gradual phase-down, potentially leading to immediate disruption, layoffs, and a slowdown in new installations.
- Homeowners might face higher upfront costs for solar installations without the 30% tax credit, potentially discouraging some from going solar due to the increased cost and limiting energy savings in the long run.
- The repealing of solar tax credits could slow down the U.S.'s transition to cleaner energy sources, potentially increasing reliance on fossil fuels and impacting climate goals, which is a significant concern.
- The solar industry, a significant contributor to job creation and economic growth, may face job losses and economic slowdown if tax credits are ended. The proposed changes face opposition from both Democrats and some Republicans, potentially leading to a contentious legislative process.
